Microsoft-Samsung Licensing Deal Tells Us Nothing About The Facts, Just About The FUD

from the trust-us-we're-not-bluffing dept

As Bessen and Meurer's book "Patent Failure" points out, one of the biggest problems with software patents is their lack of well-defined boundaries. This makes it very hard to tell whether newly-written code is infringing on existing patents or not. The threat of treble damages for wilful infringement removes any incentive to try to find out.

On the other hand, many software patents have been issued for basic programming techniques that are obvious to most competent coders, which makes it almost impossible not to infringe on them. Their obviousness means that it might be possible to find prior art to have them invalidated, but that takes time – and lots of money.

Put these two facts together, and you have the perfect situation for patent bullying. Holders of software patents will claim that some of your code infringes on their ideas, and that they could, if they wished, sue you and/or get your product withdrawn from the market. But generous types that they are, they will instead offer a licensing deal that solves all your problems.

The great thing about these licensing deals is that no details need be given afterwards – indeed that's usually a condition of them. So the patent holder can use them to insinuate to the rest of the world that fabulous sums are involved for multiple patent infringements, and that other people had better sign up quick before they get sued for even more.

"We live in a world where we honor, and support the honoring of, intellectual property," says Ballmer in an interview. FOSS patrons are going to have to "play by the same rules as the rest of the business," he insists. "What's fair is fair."

Microsoft General Counsel Brad Smith and licensing chief Horacio Gutierrez sat down with Fortune recently to map out their strategy for getting FOSS users to pay royalties. Revealing the precise figure for the first time, they state that FOSS infringes on no fewer than 235 Microsoft patents.

Significantly, though, Microsoft would never reveal what exactly those 235 patents were, despite repeated calls for them to be detailed so that people could examine the validity of Microsoft's claims. Because of this, the free software world called Microsoft's bluff, refusing to enter into licensing deals; no one was sued.

More recently, Microsoft has tried again, this time approaching manufacturers with products based on Android, which has free software such as Linux at its heart. Once more, claims that Android infringed on Microsoft's software patents were never specific, but this time it's been more successful in lining up licensing deals with major players, including one with HTC in April 2010, one with Casio, a few weeks ago and one with Samsung this week.

Most news outlets have been proclaiming the latter in particular as a huge blow against Android. But let's just look at what the press release actually says:

Microsoft announced today that it has signed a definitive agreement with Samsung Electronics Co. Ltd., to cross-license the patent portfolios of both companies, providing broad coverage for each company’s products. Under the terms of the agreement, Microsoft will receive royalties for Samsung’s mobile phones and tablets running the Android mobile platform. In addition, the companies agreed to cooperate in the development and marketing of Windows Phone.

Everyone has focused on the part about Microsoft receiving royalties for Samsung's Android products, which would imply that Android does, indeed, infringe on Microsoft's patents. But the press release made no mention of the figures involved, or what precisely they were for. Samsung might have agreed to pay $5 per unit, or 5 cents. And for all we know, that “development and marketing of Windows Phone” might even involve Microsoft paying, say, $5 or 5 cents per Android unit back to Samsung.

In the context of all the attention intellectual property matters have received in recent months, it’s worth taking a moment to reflect on the meaning and impact of these agreements. The Samsung license agreement marks the seventh agreement Microsoft has signed in the past three months with hardware manufacturers that use Android as an operating system for their smartphones and tablets. The previous six were with Acer, General Dynamics Itronix, Onkyo, Velocity Micro, ViewSonic and Wistron.

These agreements prove that licensing works. They show what can be achieved when companies sit down and address intellectual property issues in a responsible manner. The rapid growth of the technology industry, and its continued fast pace of innovation are founded on mutual respect for IP. Intellectual property continues to provide the engine that incentivizes research and development, leading to inventions that put new products and services in the hands of millions of consumers and businesses.

In other words: “Look, all these companies can't possibly be wrong. There's clearly a big patent problem with Android, and anyone basing products around it had better sign up too.”

Why might Samsung go along with this kind of thing? Well, because we don't know the details of that licensing deal, it might be receiving more than it pays out – unlikely, but possible. More likely is the situation where Microsoft agreed to help it in various ways with the Windows Phone products that it also produces – after all, Samsung just wants to sell hardware, and doesn't really care which software it runs. There are plenty of legitimate ways in which Microsoft could make Samsung's acquiescence in this licensing game attractive.

And let's not forget that Samsung is currently embroiled in a much more serious dispute around the world with Apple over its Android products. It's a basic rule that you don't fight wars on two fronts if you can help it, so settling with Microsoft – especially if the terms were favourable – makes good sense from a business point of view.

To summarise, then, this high-profile deal tells us nothing about the real terms of the agreement; all we have is a reinforced appearance that Android infringes somehow on Microsoft's (unspecified) software patents – pure FUD (Fear, Uncertainty and Doubt).

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But I do think that if Microsoft is going to use patents to demand money from companies, the public ought to know what patents are being used and how. When a business uses the government (patents) to make money and extract money from others, it's the public's business to know how such government authority is being used. After all, aren't patents supposedly about encouraging transparency?

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How do you have due diligence when a company throws out non specific claims?

There is nothing to check into.

Yes two companies entered an agreement but as the story points out it has all the outward appearances of being less than ideal for at least one of the parties, and contrary to what may be claimed that is NOT beneficial for the industry at large. Yes we don't know the details and it in fact may be an awesome deal but that appears to be improbable.

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Again, just an assumption on my part that you are certainly free to traverse, your comment suggests that you have not participated in this level of business negotiations.

I have negotiated and marshalled through execution numerous domestic and international business arrangements of the type and complexity that seem to be involved in this particular matter, and not one of them ever bypassed the step of a thorough due diligence before sitting down at the negotiating table.

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By due diligence you are referring to the fact that patent is a roulette game of chance right?

Samsung could be hurt, it was hurt in other instances and don't want to fight, most companies don't fight or try to prove anything, it is cheaper to just pay off, that is what happened in the 80's when big corporations suffered a great backlash from public opinion and courts everywhere trashed them, those where the rules of that time that endure to this day.

So due diligence means exactly nothing, because a) patents are not something that has clear line and b) it gets cheaper to settle the matter and pay whatever the otherside wants.

But it will be a short lived victory, because if other had prove anything is that they can adapt quickly to changing environments and will start patenting everything everywhere, then they will hurt American business even more.

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I Read the press release on Engadget

Seems to me that this has more to do with arrangements for Windows 8 than anything else. The Android thing looks like a red herring. Or it may be that Samsung is using liscensing to gain leverage in defending themselves against Apple's attempts to force Galaxy II products off the market. Microsoft does have a significant portfolio of Prior Art conserning slates (tablets).

If I am remembering correctly HTC is going to be the one to go to war with microsoft armed with motorola's patents we will probably get the dirty details if that goes to trial which it probably will since microsoft has gotten a taste of those android sales and can't afford to back down now. its really a shame since htc was the one propping up windows mobile 6.5 while microsoft's mobile os stagnated. hopefully HTC takes it all the way they really dont have anything to lose they aren't a pc manufacture and windows mobile 7 is pretty much a sales bust. if microsoft is taking 5$ per handset

that is quite a chunk of change if there profit margins are 10-15% as the above article suggest on a say 500$ handset that is then subsidized by a carrier they are making 50$ per handset and microsoft is going after 7.50$ to 12.50 that is quite a bite.

patent licensing used to shore up patent strength

Mike, you are absolutely right that we should doubt the assumption that a license taken by Samsung from Microsoft implies that there was patent infringement--or that the patent was valid. As you say, "this might well be much ado about nothing, the main purpose of which is to provide Microsoft with more “evidence” that it can wave at other companies when it goes calling for more licensing deals."

At least one district court has held that even the mere attempt to obtain a license under the patent is admissible evidence that is relevant to obviousness. (Amsted Indus. Inc. v. National Castings Inc., 16 U.S.P.Q.2d 1737, 1751
n.11 (N.D. Ill. 1990) (“[E]vidence reflecting the merits and profitability of the patented invention as seen through the eyes of a potential competitor in the industry [is] probative.”).)

Of course, this is largely nonsense--obtaining a license should not imply that they do so "out of respect for the strength of the patent" but rather "out of a desire to avoid the costs of litigation." (Pentec, Inc. v. Graphic Controls Corp., 776 F.2d 309, 316 (Fed. Cir. 1985).)

What to buy?

I've recently decided to get an android phone, but under no circumstances do I want to give Microsoft a dime by doing so. If that means not getting a good smartphone, so be it (I am equally uninterested in iPhones).

However, I don't think we're there yet, but who has yet to enter into a royalty agreement with Microsoft? HTC and Motorola, I believe. Anyone else?

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Nothing. I don't work for MS (or any other related company).

However, GM has made it clear on his own blog that he gets paid to post on Techdirt. So I am wondering how much Mike pays for this stuff. I would think that some people here might find it interesting that Mike is in the "pay for opinion pieces" business. I wonder what sort of contract there is, and what the copyright issues are.

GM? Mike? Marcus? Nina? You guys want to spill the beans? A little truth goes a long way!

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No. All I meant to say is that the fact someone may be compensated is no reason to dismiss their arguments as "they must be biased". My interest lies solely in the arguments presented since they are the ones directed to real issues at hand.

Mr. Moody notes on his blog that he does receive some compensation from TD. OK, point noted...but so what? His arguments on issues must stand on their own merit, and compensation has absolutely nothing to do with merit.

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It's hardly a new model: it's called journalism. People pay me, I write: I've been doing it a long time, as a Google search will show.

I put up the Registry of Interests to make it clear that any agendas people may perceive are entirely my own.

As a freelance writer, I pitch stories to editors: if they like them, I write them, they pay. If they don't, I either find someone else, don't write them - or put them up on my main blog. It's as simple as that - there's no formal contract anywhere.

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With Samsung and Microsoft, there are lots of ways for the payment by Samsung to Microsoft to be offset by other benefits from Microsoft to Samsung. That could effectively make the overall payments *negative* - which undermines the claim that Samsung needs to pay Microsoft for "problems" with Android. Lacking the details, we can't tell what the deal really means.

For transparency's sake, I included in my Registry of Interests the fact that Techdirt pays me, and that this is a simple journalistic exchange of words for money. There is no other aspect to the deal.

Whether I'm paid $1, $10, $100, or $1000 is irrelevant: it's just a question of scale, and a reflection of my ability to negotiate and Mike's willingness to agree. The exact figure makes no difference to the meaning of what I have written.

code is code

When you go to court the DA has to share the case with the defendant. Vice verse too. No surprises or the case can be dropped. The same thing should happen in copyright, and patent lawsuits. But it doesn't. I for the life of me don't know how this happened. It makes no sense. "I am suing you, but you can't know the details as to why." Out of everything to deal with patents, and copyrights, this is the one thing that needs to be changed. The other is how long they have owned the patent, and if you can prove that the patent/product has been in use longer than the patent. This in itself would stop many patent trolls dead in their tracks. But it has been going on for years.

"We live in a world where we honor, and support the honoring of, intellectual property," says Ballmer in an interview. FOSS patrons are going to have to "play by the same rules as the rest of the business," he insists. "What's fair is fair."

What I find completely disgusting about this statement is that Microsoft was able to build its business without any intervention of the patent system, as every coder or computer-savy person I knew was of the opinion that anything covered by copyright could not be patented. Had patents been available, Microsoft would probably be in the same shoes as Compaq is - a dead division of another company. Bill Gates himself has admitted as much.

Steve Balmer, and Microsoft in general, are truly an organization of honorless hypocrites, totally lacking any integrity, in my opinion.

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Uh...while certainly not as prolific a patentee as a company like IBM, Microsoft has been involved as a patentee since the early to mid 80's. As of today it has received 18,540 patents where it is the named assignee.

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Microsoft freely copied a lot of things from Linux and various open source software (ie: the firefox find feature came out with firefox before it was copied over to IE, tabbed browsing, many linux features were copied by Microsoft) yet Microsoft wants to try to abuse our broken legal system to hinder open source development?

wow

Microsoft freely copied a lot of things from Linux and various open source software (ie: the firefox find feature came out with firefox before it was copied over to IE, tabbed browsing, many linux features were copied by Microsoft) yet Microsoft wants to try to abuse our broken legal system to hinder open source development?
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